Transcript of "Marketing13"

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MARKETING, AGRICULTURAL PRODUCE AND MARKETING. ANDCOOPERATIVE MARKETING IN TRADITIONAL RURAL AREASBy Zvi Galorwww.coopgalor.com 19901. Introduction - What is marketing?There exist today a wide variety of concepts of marketing and its nature. The verydefinitions of marketing have also undergone considerable development in thesecond half of the 2nd century, which is reflected in the literature mentioned below.Today we encounter several basic concepts of marketing and its nature. The fivemain marketing concepts are listed below [1]: -"The production approach - being a managerial orientation assuming that customerswould prefer products which are both accessible and affordable. The mainmanagerial function would then be the improvement of production efficiency and ofthe distribution system. .The product approach - being a managerial orientation assuming that customerswould prefer products of the highest quality for a given price. The firm shouldaccordingly devote its main resources to improvement of product quality...The sales approach - being a managerial orientation assuming that customers would(or would not) acquire the firms products, in proportion to the efforts made by the firmto generate an interest in the product. The firm should accordingly locate potentialcustomers and try to convince them, sometimes aggressively, that its products aresomething they cannot do without...The marketing approach - being a managerial orientation maintaining that the keyto the attainment of the firm’s objectives consists in the determination of the needsand aspirations of the target market, and in tailoring the organization so as to caterto consumers desires in a better and more efficient manner than competing firms. •The marketing-social approach - being a managerial orientation which calls forfocusing upon the diagnosis of the needs of the target market and their fulfillment; inparallel, public welfare should be upheld in the long term."These approaches outline the general framework of theoretical and practical thinkingabout marketing. Let us now review the various definitions of marketing as putforward in various studies over the last 3 years, in order to trace the development ofthis subject.The first definition, in a study dating back to 1952 [2], refers to marketing as aproduction-dependent activity. The definition states “ marketing is the means bywhich you dispose of the output of a farm, of factories, mines, quarries, forests,fisheries, hunting, oil, as well as everything imported." The following is added byway of explanation: From the seller’s viewpoint, marketing is the ability of themarketing system to transfer everything produced from the producer to the 1

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consumer, (with minimum hindrances for the highest possible return and wages.On the other hand, from the consumer’s viewpoint, marketing is simply the ability totransfer goods in which he is interested, in the form and the manner he desires, andat the lowest price to him. By making a synthesis of these two viewpoints, it shouldbe clear to us that marketing is in fact a series of foregone decisions, based on asuitable market survey, as to what are the goods one should produce or import, andin what quantities. In fact, these definitions teach usthe basic concept of marketing. Inside any marketing system, we find the produceron the one hand, and the consumer on the other hand; and in between ¥them we findthe mechanism which causes the products and services to pass from the producersside on to the consumer’s side.First definition of our review referred to marketing as a system assuming that thecenter of gravity is with the producer and his point of view. Another definition whichalso dates back to the fifties clarifies the following for us: "Production means theconcentration of raw materials in one place, while marketing means that this parcel offinished products is sent into farther and farther, far-flung regions" [3]. Anotherdefinition of the same period which stresses the passage from the producer to theconsumer and also the importance of product-ion says the following: [4] "Marketingin general may be defined as the whole process by which real marketable surplus,belonging to the producers, reaches the consumers." In the sixties we find a shift inperspective and the center of gravity of the marketing definitions in the literature onthe subject. Researchers now find that the stress falls somewhere in the middle -between the producer and the consumer. The stress is now made on thatmechanism which enables goods and services to pass on from the producer to theconsumer. Ottenson and others [5] explained that: "The firm is the bridge ofdecision-making between the market it series and the sources from which it buys.The buyer’s market constitutes the main source of income, whereas the sellingmarket is the main absorber of the firms outlays." We further find that in that decadeof the 6s it was attempted to extend and refine the concept of marketing, in which thefirm occupies a central position, and the following definition [6] tries to present amarketing model which describes price relations between different points ingeographical space, different points in the time dimension, as well as betweendifferent alternatives based on the same raw material:"Prices in different geographical locations within the same country will differ by nomore than the cost of transportation from one point to another, within one givenmarketing area. Prices will differ precisely by the cost of transportation from the pointof production to the marketing location. Prices at one point in time will differ fromprices at another point in time, precisely by the storage costs-The price of one product will differ from the price of another product manufacturedfrom the same raw material, by the difference in processing costs."This concept also fits in with the discussion concerning the marketing of agriculturalproducts and the role of the cooperative in this set-up. Indeed, a definition ofmarketing with preference to the agricultural system again stresses the importance ofthis marketing system as a link between producer and consumer [7]:"The performance of business activities directed towards, and incidental to, the flowof goods and services from producer to consumer or user." During the 80s the center 2

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of gravity of marketing definitions shifted from its former midway position between theproducer and the consumer, to the side of the consumer. The consumer and societyare the main issues nowadays, and the manner of satisfying their needs. Successfulmarketing is that which accounts for the consumer and its environment, as this isoutlined by the following definition [8]:"Consumer satisfaction with social responsibility has been regarded as the centeraround which all marketing activities should revolve".Again we find that as opposed to the past concept of marketing, which stressed thesale of products, the approach nowadays lays emphasis on the satisfaction ofconsumer needs.Figure 12. Agricultural MarketingNow that we know what marketing is, and how the various approaches havedeveloped in understanding this process, let us examine and learn what agriculturalmarketing is. Let us try to find out, if what holds for marketing in general also hold foragricultural marketing, and for marketing in traditional rural areas in developingcountries. It is fairly clear that when we consider a marketing method suitable for atraditional agricultural society, it will have to be adapted to the pattern of thetraditional society for which the said program is intended (9)Traditional rural areas are distinguished by a subsistence economy. In such villagesthe production unit is the family, which produces the food for its own consumption,and for the payment of rent or tax, at the equivalent monetary value. Surplus isoffered for sale only after a particularly plentiful cultivation season. The family unitconsidered as a production unit, is quite small and such units operate separately.This situation makes it difficult to concentrate the produce for efficient marketing. Incertain areas the vast majority of the population is not at all used to thinking in termsof commerce and barter trading. Another characteristic of these areas lies in the fact 3

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that many of the traditional peasants would be prepared to switch over to thecultivation of market crops, provided a price system is set up which gives them anincentive (10).The traditional peasant in developing countries sells his produce at the time and forthe price, which are the least advantageous for him. He sells in order to pay hisdebts, but the cycle is repeated, and he becomes involved in new debts. Indeveloping countries, the peasants sell a "forced" surplus. The peasant is forced tosell a sizeable part of his produce, sometimes much more than he would have sold ifhe had had the choice. In fact, the surplus marketed in the developing countries isdetermined as follows: If we work out the total produce of the peasant, deduct fromthis the family’s own consumption, plus payments he makes by handing overproduce, as well as the payment of various debts, usually to money-lenders, wefinally obtain the amount left to the peasant for marketing (11).Maynard and Beckman in their study [12] list the main functions of agriculturalmarketing. These include purchasing, sales, transportation, storage, sorting andgrading, financing, added risk, and marketing information. Purchase and sale involvechange of ownership. A thing sold is also bought, and anything bought is also sold.Transportation involves the transfer from a place of surplus to a place of shortagethis is the geographical dimension, while storage involves the transfer from a periodof surplus to a period of shortage - the time dimension.Mathur in his study of 1971 further extends the stages involved in agriculturalmarketing [13]. He argues that marketing starts at the peasants field and includesthe following: collecting produce surplus from individual peasants, transportation to anearby depot, sorting and grading, stocking up, processing, storage, packing,transportation to consumer centers, contact between producer and consumer, andsale to the consumer.Most of the operations of the potential marketing require capital, and are carried outat a high risk. The agricultural produce is usually transported in bulk. Storageand transportation are very costly. The produce is seasonal, whereas the demandfor it continues all year round. The traditional peasant is a small marketing unit.Hence produce collection is complicated and expensive. Agricultural marketinginvolves losses, damage, and quality impairment during storage and transportation.It is difficult for the traditional Peasant to undertake the marketing operations, andtherefore most of these operations are carried out by middlemen.The obstacles in traditional marketing are the following: The marketing circle is longand archaic. The marketing circle: stages through which the products pass. Startingwith the producer, and on until they reach the consumer. Within the framework of atraditional market, the stages which the products go through are extremely long andweighed down by a plethora of middlemen.The infrastructure of transportation is archaic, the roads are bad or do not exist at all,producers are a long way from the market, and consequently transportation costs arevery high. The fact that there is no planning in the production and the irregularity insupplying the market, causes either a surplus or a seasonal scarcity of products onthe market Imported products compete with the local production. Lack of sorting,processing and of warehouses and lack of organization of producers and consumers. 4

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Mathur goes on to classify the traditional markets. In the first place, we have theprimary market. This market is at the village level. The market does not functionevery day, but at fixed intervals of a few days. The market usually serves an area ofabout 1 km radius.Next we have the secondary market. This already operates day by day, and theaction is wholesale. The market is regional, located in the central area of the region,close to arterial roads, and it embraces a wider radius of activities.The final market is the one in which the produce passes directly to the consumer, orgoes on to be processed, or to be prepared for transportation to markets abroad. Anexample is a market located close to a harbor.One must distinguish between the traditional market and the market which functionsregularly every day and also includes warehouses and wholesale services, of privateor state owners hip (15).The local traditional market is usually maintained in areas where transportation isalmost impossible for the rural population with its limited means. And the goods andservices are intended for local consumption. The local market is usually located in amarket place. This is a site in which the goods offered change from season toseason. Such local market form a network, in which one market is linked to anotherthrough the passage of goods, services and people. The local market is a meetingplace of occasional sellers, who set up at random in sales shacks, and cometogether at fixed time intervals at that fixed site. This is where goods and services aredistributed between the villagers, who act both as buyers and sellers (16).Who are the market operators? - In the first place, we have the itinerant villagetrader. He is the main operator in the primary market. Sometimes he himself is theproducer. In other cases, he is the one who transports goods to and from thesecondary markets. He attends to the storage and sees first¬ hand reaction to of theagricultural produce. In some cases, he hands out advances on account of theproduce, and thus finances the peasants. The second type of trader forms the linkbetween the village level and the secondary market level. He sells produce on acommission basis, which he collects both from the seller as well as from the buyer.He often finances the village level, and thus forces the peasants to sell through him.The third type of traders are those who represent more serious purchasing outfits.They operate on a commission basis. They take care of cleaning up the produce, aswell as processing it weighing, packing and dispatch to centers of transportation.these people have a large amount of capital at their disposal and finance theirbusiness independently [17].One further factor worthy of mention is the price of marketing, which includes all thesubsidiary expenses of the marketing process. These expenses usually give rise tothe difference between the consumer price and what the producer gets paid. Thereasons for this are many. Farms are widely dispersed and production units are toosmall. There is no uniformity in the quality of the produce. Transportation is difficult,and marketing information is faulty. There is insufficient capital for the processing 5

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and storage, and financing costs are high. Other factors which raise the cost ofagricultural marketing are e many and "ed levies, the failure to sort the producewhich detracts from the return to the grower, inefficient sales procedures, neglectingto weigh the produce, and delayed payment to the grower. There are too manymiddlemen, and no regulation of the distribution among markets [18].The mechanism of market prices: This is composed of the following: The price of aproduct is determined by the supply and demand in the market. The supplyrepresents the quantity of products offered the same day on a certain regionalmarket. The demand represents the willingness to buy the same products by theconsumers, the same day on the market. The price of the product on the market isnot the price that the producer receives. The following expenses will be deductedfrom the price paid by the consumer:(a) Transportation costs - distance, the means of transportation, kind of producttransferred and its processing are factors which determine the cost of transportation.As the distance in transportation becomes shorter and the quantity for transferincreases, so the cost of transportation, which comprises part of the cost price of theproduct, diminishes considerably.(b) Processing: presentation of the product must be enticing, in unit packing, thusallowing direct consumption to the consumer.(c) Sales: Cash sales are convenient to the producer. Credit sales are alsoconvenient as they increase the range of customers; however, the risk of unpaiddebts and the interest involved in credit terms, may lead to these sales being writtenoff as Bad Debts.(d) Storage of the surpluses during times when demand is higher than supply. Thecost of storage is influenced by the following factors: - Construction costs - Maintenance and depreciation (labor & financing expenses) - Volume of products produced, due consideration being taken of the storage capacity. - Special conditions for storage of various products (perishable food, liquids, etc.). - Average, burglary and losses.(e) We can add also factors that have an impact on demand. The more plentiful theproducts offered to the market, the harder it will be for the consumer to take adecision, viz. in regard to: - Advertising - Presentation of the product - Trademark.(f) To sum up: the selling price of a product is determined by the law of supply anddemand. The price the producer receives is lower than the selling price. The price ofthe product sold implies the evidence of all the abovementioned factors, as well asthe profit of the middlemen, wholesalers and retailers. 6

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3. The Problems of MarketingWe deal here with the principles of marketing, and assume that what is right formarketing in general also holds good for agricultural marketing. In order to test thisassumption, it is a good idea to examine an additional component of the marketingsystem, which is the firm. The firm is the decision-making bridge between themarketing it serves and the sources it buys from. The firm’s expenses arise when itraises and receives capital, labor, and other resources needed for production, whileon the other hand it provides a supply, for which it assumes there is a demand, in themarket it has chosen to serve [20].The firm’s main problem is how to manage its resources in such manner as tomaintain an optimum relationship between expenditure and income. In otherwords, the firm must implement an efficient conversion of resources so as to providea supply answering an existing demand. The firm should decide what to offer, andhow to pick the suitable market in which to offer its supply. The combination of all thevariables of which the firm decides to make use constitutes what we call "themarketing mix."The firm management must find out and establish its optimum marketing mix. Thecomponent parts are many: how much of our resources are we going to invest inproduction; how much should be devote to product development and future planning,and how much to present production; how much should be spent on publicity; theadvertising budget must be divided between the different forms of media, betweenvarious products, between areas of distribution, between methods of distribution, andbetween potential customers.The firm must decide what is going to be the final price of the product, the amount ofdiscounts granted to middlemen, what are going to be the sales areas, and the typeand number of intermediary agencies.Other considerations facing the firm include the types of packaging, the trade name,possibilities of obtaining credit, repair service for products sold, product warranty,subjects which should figure in publicity, promotion frequency, messagescommunicated, gadgets for salesmen, points of sale, and gifts to customers.To sum up, the firms marketing task is to combine all the variables of the marketingmix into an effective marketing program. A good program should take into accountall the components for each and every product. Every variable of the marketing mixis interchangeable with another. For instance, if we can grant a reduction in the priceof a product, perhaps we can do with less promotion outlay. Similarly, the placementof more salesmen could perhaps be an alternative to an increase in the salespromotion budget.The firm knows that all the marketing mix components are expensive, and the mainquestion is how much of each variable it is worthwhile to apply, and how muchmoney to spend on each of them. The firm faces the traditional problem of choice, inview of financing limitations, out of an almost infinite number of possiblecombinations of the variables.On certain of these variables the firm has no control, though it does exercise aninfluence on them, such as the market and the demand it represents, who thecompetitors are within this market, what the various sales channels in this market 7

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are, the firm’s employees, and the technology, which affects the use of the firm’sproducts. There are also such variables, which are entirely beyond the sphere ofinfluence of the firm, such as cyclical price fluctuations, and the change of seasons,the general level of employment, the legal framework, the social- environmentalframework, and the structure of social establishments. The people responsiblefor marketing within the firm may find themselves in conflict with other factors withinthe system, such as restrictions of advertising budget, forbidden marketingchannels, and imposed minimum and maximum prices.The firm’s main task is to put together the marketing mix of instruments so as toachieve the maximum profit. The firm will discover that it has achieved the maximumprofit by applying the marginal profit approach. It will put the optimum mix to the test,which should show that there is no longer any improvement in net profit, neither upona change in one of the components of the mix, nor with a new combination at ahigher rate of expenditures.In order to achieve such a high "level optimum, it is necessary to have a clearestimate of the relationship between the cost and income for each of the mixedvariables, severally as well as jointly, with the other variables, in order to gauge inwhat measure they serve the firms purposes. One needs to equalize the marginalnet profit for every single one of the mixed components, so that if the last dollarinvested in publicity yields a further marginal profit of $50, whereas the last dollarinvested in personal sales yields only $25, then if $1 is taken out of personal salesand invested in publicity, it will certainly increase the net income of the firm.We wish to reach a point at which the net return to the firm upon variations in price,quality, product form and design, sales promotion, distribution, and all the othercomponents of the mix, will be the same. The firms marketing program should benot just balanced, it must be balanced at the highest profitability level, and then wehave the optimum mix [21].4. Constraints of Agricultural MarketingMost small farmers do not possess suitable marketing means, and this is the mainhandicap to increased production. Many of the farmers feel -that they run -too high arisk of no-t being able to sell their produce at a fair price. The traditional farmer’sneed above all is to have faith in the marketing system. It is possible to conclude,and we shall return to this point further on, that one of the main ways of improving thefarmer’s productivity, does not consist merely in improving the inputs and theproduction methods. It is important to secure a reliable market, a suitable price, anda system by way of which the farmer can market his produce, and at the same timereceive the highest possible share of the price paid by the consumer for that produce.[22]When the farmer sets about marketing his produce, he faces many constraints.Overcoming them will help us in restoring his self-confidence, and will help him todevelop. The first group of constraints is those due to physical conditions. Theprimary condition is the general infrastructure, which includes insufficient means oftransportation, bad roads, and undeveloped markets. A further factor is the absenceof agreed standards. There are no agreed standard rates and measures, and in most 8

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places the scales used are biased to the detriment of the farmer. The next factor isthe means of storage. Insufficient storage space, and faulty facilities give rise tolosses. The lack of storage facilities prevents the farmer from keeping over hisproduce until the season when its price rises, resulting in loss of income.Handling does not exist, or is in very bad repair. Transport methods are outdated,and packing and containers unsuitable. The points of unloading, loading and supplyare unsuitable. The supply inputs are unsatisfactory to the farmer. These are notprovided in the quantities requested, neither when they are needed, nor again arethey of the kinds and qualities required. The constraints of agricultural marketing,which hamper the traditional farmer, also include components, which are morespecifically related to marketing.Commercial efficiency is hardly accorded any attention, particularly bygovernment and semi-government institutions, and sometimes also in cooperativesocieties set up by the government. The farmer has a very slim bargaining edge,and this fact is exploited by the private traders. The traditional farmer has nofinancial means. Further constraints he faces are related to the marketing price andthe pricing policy. In many cases, the price paid to the farmer leaves him no profit atall.The input prices are too high in relation to the marketing prices. The pricefluctuations are excessive, and this in addition to high and unjustified marketinglevies as well as import taxes and exports taxes. The system of payment and themanner of payment to the farmer is also significant - usually the farmer receivespayment too late, at too low a rate, not in cash, and occasionally only part of the sumdue.This factor is bound up with the next factor, which is credit. Credit to farmers isvirtually non-existent. When it does exist, it is insufficient. When it is granted, theprice for it is too high. Marketing information is an important factor, which in mostcases is not at the farmers disposal. Information concerning prices, markets andother data, is faulty and deficient. Information concerning supply and demand inmarkets at various places is almost non-existent, which prevents the farmer fromrationally regulating the supply of his produce.The government agrarian policy affects the farmer in a major way. Manygovernments have a general policy of food imports, or received food productsthrough foreign aid, which reach that country at prices far below the prices requiredby the farmer in return for his produce. Unrealistic exchange rate policy results inunprofitable exports, and gives rise to cheap imports, which compete with the localproducer. Many governments do not carry out a real agrarian reform policy, whichcould help out the farmers. The small farmer finds himself in a vicious circle.Companies and marketing organizations have no economic interest in providingmarketing services to a far ranging and non-uniform farmer population, scattered inremote and hard to reach places. Without such services, the small farmers will nottake on the risk of stepping up production beyond their proper consumption.5. Cooperative MarketingA marketing cooperative is set up in order to market and sell the surplus produce ofits members, being such a surplus, as they cannot consume themselves. Marketing 9

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cooperatives generally sell agricultural produce, but there are also those, which sellfish produce or handicrafts [23]. There are also other definitions of cooperativemarketing. Margaret Digby defines a marketing cooperative as a system in which agroup of farmers join together in order to carry out part or all of the processesinvolved in bringing the produce from the producer to the consumer. The Bank ofIndia defines a marketing cooperative as a society of farmers, organized for thepurpose of helping the members to market their produce, so as to obtain higherprofits than is possible by way of private marketing [24].The reasons for the establishment of such cooperatives are:When there is a surplus in production over the consumption.In order to save expenses for middlemen who benefit from the producer in variousfields, such as: bad weight, very low prices and loans at high rates of interest.When the system in force is archaic, it does not meet the requirements at all,involves many middlemen or compensates very weakly for the producers work.Thus, a marketing cooperative must offer its members a more efficient service thanthat in force, so that its members obtain a greater profit from their work.When establishing a marketing cooperative, it is indispensable to study variousaspects and problems:What products shall we produce and sell on the market? Whet, experience in regardto production? What species are marketable every season, quantities and qualitiesthat are preferred? What are the perishable items that can be stored and under whatconditions? What is the present marketing system? What system of payment ispracticed for the producers? Is any advance payments allowed just after the crop, orwill payments be effected only after the sale of the products? What is the bestmarketing circle of the production? Does the product undergo a process for itsimprovement? To have a sound knowledge of the medium of the improvement.Financing Problems: One producer expects to get his money upon immediate sale ofhis products. Another producer wishes to receive a down payment. Whereas, thecooperative is paid only after the sale of its products. Sometimes, it is evennecessary to store the crop for many months before it can be sold. It is also possiblethat the output will be sold at a distant market, which entails transportation costs-, or,sometimes, the retailer will delay payment of his bill. All these factors produce aclash of interests between the needs of the producer and the existing possibilitiesof the cooperative. Therefore, working capital is indispensable to meet therequirements and to comply, at least partially, with the interests of all.Possibilities: An important working capital to farmers. Financing on short-terms bya bank. Financing by a cooperative bank. Establishment of a financing enterprisewhere the members of the cooperative are also the shareholders. Such a financingenterprise will be established by the marketing cooperative. It is the mostadvantageous and cooperative solution. Cheap credit is allocated to the farmerprovided he sells all his output through the cooperative.When the cooperative has determined the exact quantities, which it will be able to 10

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sell, it is in its own interest to make agreements for sates in advance. A sound salecrowns the producers work. This is the reason why the establishment of acooperative is a necessity to the farmer. The cooperative prevents unhealthycompetition between its members, sorts out the products conscientiously and directsthe supply towards the demand.The cooperative has to cope with all the abovementioned problems when selling itsproduction. Other problems also arise, such as: A small supply of different products;thereby small quantities for sate. The production of vegetables and poultry must besold several times each week. As the agricultural cooperatives are far away fromthe market, transportation costs go up. Bad roads and high transportation costsfurther increase the cost price of the product. [25]The marketing cooperative was created in order -to push up the selling price as muchas possible and to increase the return to the member’s -For their output [26]. Thecooperative offers its members an improved bargaining position in regard to servicessuch as transportation, and is capable of affecting a better sale. The better theservice the more members will be keen to join the cooperative. More members in thecooperative will enable a reduction in the price for various services, as well as inrunning costs. The cooperative makes it possible to maintain services such asstorage, bulk transport, extended credit, markets survey, cooperative education,which the single farmer is generally unable to achieve [27].Marketing cooperatives in developing countries encounter many difficulties. G.Hyden describes some of them [28]. Many of the marketing cooperative in Tanzaniawas set up by local politicians who were influential at the national level. The mainargument was that cooperatives would minimize exploitation. The cooperatives wereset up without any feasibility study or field survey, and as a result they fell intoconsiderable monetary dependence on external organizations, such as marketingorganizations or financial institutions. Since the cooperatives were set up to suitexternal decrees (the politicians), the marketing cooperatives fields of activityneither accorded nor covered, either functionally or regionally, the needs of theproductive units at work in the rural areas. The cooperatives were troubled by gravemanagement problems, and in parallel by lack of skilled manpower.In Bangladesh a very extended system of agricultural cooperatives wasorganized [29]. The marketing cooperatives, which are of the third level, areconcerned with four main activities - the marketing of agricultural produce of all kinds,the marketing of semi-industrial products (handicrafts), marketing of fisheriesproduce, and marketing of dairy products.Agricultural villages form the base of this structure, whereby every fifteen villagersmake up a secondary level unit. All secondary level cooperatives are organized intoa third level cooperative. Though these cooperatives have made significantachievements, they are also faced with weighty problems. The first problem iscredit. The farmer would like to sell his produce for cash, and this requires thecooperative to have command of considerable liquid resources, for which it mustobviously pay dearly. One of the solutions to this problem is, of course, to sell thefarmers produce on a commission basis [30]. But as is the case in India, so inBangladesh, the cardinal problem of the marketing cooperative is the lack of any link 11

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between marketing and credit [31]. Further problems in Bangladesh are the greatdistances between the cooperative branches and the farmers in the villages. Themanagement of those cooperatives is not professional, and many of the societiesare in fact reduced to waiting for things to happen [32].At the other end of the scale we have examples of marketing cooperatives, whichhave been successful. In Jordan, the olive marketing cooperatives have changed thefarmer’s methods of cultivation. The farmer was obliged to pick the olives carefullyand in a selective manner, so as not to harm them. The olives were transporteddirectly to the oil press, without interim storage. The farmer could step up production,but he was required to supply better quality and cleaner produce. The produce wasgraded into various quality levels, and this grading also increased the demand on thepart of the consumers. The cooperative also succeeded in influencing prices.The cooperative led to an increase of the return to the farmer by 1% over the marketprice, with customers being on the look out for the cooperatives olive oil, as theywere confident of its quality (33).The carob marketing societies in Cyprus have also been successful, and so haveother marketing societies. Among the reasons for this success we may note the factthat the farmer was more exploited in the past. The marketing cooperative, onaccount of its size advantage, has attained lower marketing costs than the privatetraders, on top of the high level of management [34].Another example is the agricultural marketing system in Algeria. This system, whichhad been influenced by the socialist dogmas, which placed the State above all. Is anexample of severe failure in everything that concerns marketing? The system hastailed in all that concerns transfer of information, packing, transport and storage [35].6. Models of Marketing CooperativesMarketing is the process that an agricultural product goes through on its way from theproducer to the consumer.Traditional marketing involves several intermediary stages within this process. Theresult is, of course, that the consumer pays an exorbitant price and the producerreceives a very low price for his production. Naturally, it is in the interests of bothproducer and consumer that the number of steps in the marketing process bereduced as much as possible. The result: the producer will earn more and theconsumer will pay less.The first form of marketing is the traditional marketing circle I he peasant sells hisproduction at a local market which is held in his village every 5 or 6 days - this is thefirst stage. The intermediary who buys this production transports it. Usually onoverloaded small open trucks covered with a tarpaulin, to a regional market. Anotherintermediary will buy these goods and transport them to an urban market. Theproduction will then be sold and distributed at the neighborhood markets where theretailers will come to get their supplies for sale to the consumers. This wayagricultural produce has undergone too many stages from producer to consumer.All intermediaries have benefited -From this process, but not the producer nor theconsumer. 12

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The solution to this state of affairs: a marketing cooperative owned by the producers.This cooperatives aims are to reduce to a minimum the number of marketing stagesbetween producer and consumer. In Israel, the Tnuva cooperative is a marketingcooperative belonging to all moshavim and kibbutzim, and today has the fourthlargest turnover among Israeli enterprises. Tnuva has organized a national network,which takes upon itself the collection, transportation, storage, processing and sale ofapproximately 75% of agricultural output earmarked for the local market in Israel.The setting up of Tnuva has reduced the number of steps in the marketing circle, butnot enough. Agricultural produce leaves the farm, passes through "Tnuva" and isthen sold in the local market and in various small shops.Another alternative reduces the number of steps even more. This alternativeinvolves direct contact between the marketing cooperative owned by the farmersand the consumer cooperative owned by the consumers. Thus, the sale ofagricultural products takes place from one cooperative to another, and in principle,the profitability for the producer increases while the purchase price for the consumerdecreases. This situation, though far removed from the traditional marketing circle,does not go far enough. It is still necessary to try to eliminate superfluous steps inthe marketing circle. Two solutions have been found:The first consists of consumer sale centers, belonging to the marketing cooperative,an example of which is Tnuva in Israel. These sale centers link producers directly toconsumers. The second solution consists in supply centers for agricultural produce,which are owned by the consumer cooperatives, the latter belonging to theconsumers. In this example the consumers have organized themselves in order toacquire their consumer goods directly from the producers.The last marketing method, which we shall discuss, concerns the organizations whichbelong to the farmers and the government and which deal with the export ofagricultural products [36].The last stage in our model is the stage at which selling takes place directly from theproducer to the consumer. This is the preferable stage because it produces the bestresults of all, both as far as the producer is concerned, as well as for the consumer.An example of this is direct selling outlets, which have been set up by moshavim andkibbutzim at roadsides all over the country, which sell their produce directly to thepublic. This solution is beset with problems and is not always possible ofimplementation - but this is the solution we strive for.Figure 2. 13

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Agricultural marketing cooperatives throughout the world are mostly concerned withthe marketing of agricultural produce of individual producers who run their farms ontheir own. These farmers cooperate mostly for the sake of marketing their produce.Tnuva, the biggest marketing cooperative in Israel, is a cooperative of the seconddegree, which markets the agricultural produce of its members, which are theprimary cooperatives [37]. Tnuva was founded in 1926, when the agriculturalproduce marketing division was detached from Hamashbir Hamerkazi. HamashbirHamerkazi served as the central cooperative for the supply of basic provisions, andbelonged, as it still does today, to the moshavim and to the kibbutzim. It must bestressed that Tnuva was founded, like other marketing cooperatives, from below, andnot by decree of government or other authorities, from above. Membership in Tnuvawas and remains to this day open to any Moshav and kibbutz, or to any otheragricultural cooperative in Israel. The member joining is not required to invest moneyin buying a share, but has to fulfill other obligations. A Tnuva member is required tomarket all his agricultural produce through the cooperative, without exception, for thefollowing two reasons: In order to prevent competition with other Tnuva members,and in order to tighten the link between credit and marketing [38].Tnuva members participate in the cooperative central executive councils, sendingone, two or three representatives to the cooperative general assembly. The numberof representatives is determined according to the farmer membership in each primarycooperative (Moshav or Kibbutz) and is independent of the monetary productionvolume, or the quantity of produce marketed.There were two important operational guidelines in Tnuva. As already mentioned,all the output of Tnuva members must be marketed through the cooperative. Themember settlement must pay Tnuva a fixed commission, which may occasionally bequite high, compared to other marketing networks [39]. This commission isdeducted as a certain percentage of the marketed produce. Tnuva in fact operatesas a non-profit organization. The entire marketing return is passed on to the farmer,less the commission, which is calculated for each type of produce separately, inorder to cover the direct expenses and the cooperative financing expenses. Since it’sfounding to this very day, Tnuva policy has been directed at two main goals. Thefirst was to sell all agricultural produce of the cooperative members. The second wasto safeguard the consumer’s interests.The first goal is attained when the cooperative sells the produce transferred to it.Tnuva has always endeavored, as a general policy, to obtain the maximum return forthe produce of the farmer member [40]. In addition to the abovementionedcommission, Tnuva further deducted a very low commission, usually much less than1%, from each sale affected. Tnuva named this deduction, "members contributiontowards the purchase of Tnuva shares" [41]. The money thus collected was intendedfor investment in the cooperative. We have here two Phenomena investment in thecooperative. We have here two significant phenomena:- Tnuva has accumulated a property (equity) which was financed by a percentage itdeducted from the sates of each member, but was actually totally anonymous, andthe member had no way of knowing, or perhaps had no desire to be able to knowwhom those shares belonged to. The member did not know, and could not know theworth of those shares for which he had paid. The shares conferred on him no rights 15

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whatever, and in fact after many years an enormous equity was amassed at Tnuva,which was not linked to the member in any form whatever, except perhaps in theabstract.- In spite of the fact that it is the primary cooperatives that are the Tnuva members,not the individual people, the above monies are deducted from the individual. Tnuvaforms a direct link with the member of the primary cooperative, not with the primarycooperative as a unit. The farmer member became acquainted with Tnuva directlyin everything regarding the sates organization, the marketing, prices, and deductions,but so far as the democratic system of the second-degree cooperative wasconcerned, he was quite definitely out of touch. Representatives at theTnuva institutions were usually delegated at the executive level of the cooperative towhich he belonged. The individual member had very little say in this in practicalterms.The second interest mentioned - safeguarding the rights of the consumers was aprinciple, which was to guide Tnuva’s business activity throughout its existence.Tnuva attempted to minimize the marketing stages, and bring the producer closer tothe consumer. This was evident during the 30s and 40’s in the establishment ofdozens of retail sales branches of Tnuva throughout the country, in the cities andtownships [42], as well as during the 80s, when the largest supermarket network inIsrael was founded. Tnuva deals with the various aspects agricultural marketing,such as the processing of marketing produce, sorting and grading, quality control andpackaging[43].One of the main problems with which Tnuva is confronted is the price problem.Tnuva sells its produce at market prices, particularly as regards fruits andvegetables, as well as any other product not under government control. On the otherhand, the size of the cooperative (Tnuva is the fourth largest company in Israel)enables it also to regulate the prices of agricultural produce and thus to be ofservice to the consumers as well [44]. Tnuvas price policy, and the fact that Tnuva isa cooperative, has generally helped to reduce the gap between the price received bythe producer and the price paid by the consumer. The argument in Israel in the pastwas that this gap is relatively small, on account of the marketing being done bycooperative. We may perhaps add that Israels limited geographical extent, inconsequence of which transportation distances are short, certainly also contributes inthis respect. Verlinski lists a number of measures by which the gap may be reduced[45], such as maintaining a higher quality, grading and packaging, maximumefficiency in wholesale transportation, as well as suitable retail packages, andcentralized retail marketing, which enables increased turnover and the reduction ofcosts as well as improved service.How can we in practice estimate the price of a product from the producer up to theconsumer? This path is quite long and has been described as follows [46]:Rice passes the farmers gates on its way out. The dispatched rice has not yet beenthreshed and cleaned up. To the price of the rice at the farm gate we must add thecost of transport to the village collection depot, as well as additional expenses suchas sacks, etc. This gives us the price of the rice at the village collection depot. To 16

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this price we must add the transport costs to the rice station, the cost of weight tossdue to the drying of the rice, the storage cost which depends on how long is it goingto be stored, material losses of waste and damage, general expenses of the ruralstation, as well as the profit made by the people who run this station. Ricetransported to the rice station for threshing will undergo a price increase by the costsof threshing, storage, additional drying, transport to the wholesaler, packing costs,general expenses and the profit of the threshing station. This is the price of the ricewhen it is passed on the wholesaler. To this price we must add the average storagecosts at the wholesaler, waste and material losses, cost of transport to the retailer,general expenses of the wholesaler and his profit. The retailer will add to this pricehis general expenses as well as the profit he hopes to receive and thus we finallyreach the consumer price. This chapter concerning Tnuva may be concluded with aquotation from Nahum Verlinski, one of the first directors of Tnuva, who wrote in the6s [47]:The marketing of agricultural produce is the final stage of the producers work and isthe factor, which dictates his activities throughout the year. The farmer’s success orfailure in marketing his produce decides the success of all his work. Marketing is thusa matter of primary importance to the farmers, and it is therefore not surprisingtherefore that all over the world farmers have tried for years to gain control of afunction so vital to their existence, by organizing themselves into cooperatives todirect and expand the sale of their produce.Without the benefits of co-operative marketing, the farmers remain dependent oncommercial distributors, who are in a position to dictate conditions. Cooperativemarketing also benefits the consumers, by imposing responsibility on the producersfor supplying their produce, helping them to handle their produce efficiently andregulating its flow to different parts of the country.Another important aim of cooperative marketing is to promote the long-term interestsof its members. One of the most important factors in this is to relate prices to quality.Israel farmers have realized the value of cooperative marketing years ago and theirdegree of organization is high. Cooperative marketing covers 80% of local sales andan even higher proportion of agricultural exports.The young states of Asia and Africa are based very largely on agriculture, andcooperative marketing of their produce is therefore important to make themindependent of commercial interests, and to assist their development in everyaspect."8. The Production, Marketing and Export BoardsOne of the most important marketing institutions, and one which exists in the vastmajority of the worlds countries, are the production and marketing boards. This is acentral marketing organization serving a specific industry (a specific product), whichis intended to achieve a higher efficiency and orderly marketing. The board isdefined as an essential organization, influenced and directed by the producers, setup by the authorities, with the purpose of intervening in the various stages of 17

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marketing [48].Most production boards in developing countries are involved with the producersinterests. The first boards, which were set up towards the end of the 20s, sprung upas a result of the farmers’ struggle to increase their own bargaining power and that ofthe cooperatives representing them, in the confrontation with competitiveintermediary outfits.The overall trend was one of technological advance on the part of the small farmers,who consequently reached a state of production surplus, and thus became more thanever dependent on the various intermediary outfits. The farmers set up marketingcooperatives in order to protect their interests. Those cooperatives weresuccessful, and thus contributed to the stabilization of marketing conditions. Thissituation was beneficial also for farmers who were unwilling to join the cooperatives.The preservation of members loyalty became a major problem of marketingcooperatives. The cooperatives accordingly turned to the government, requestingthat it form production and marketing boards vested with the power of enforcement[49].The marketing boards have a monopoly on the marketing of a product or a number ofproducts. The board buys goods from the farmers through authorized agents at anagreed price, at official stations, and carries out the grading. The board organizesthe necessary transportation. A monopolistic board may undertake a variety offunctions including overseas publicity, research of new strains, the improvementof cultivation methods and transportation techniques, etc. The non-existence ofcompetitors reduces marketing risks, reduces prices as well, and indirectly alsoreduces credit prices.Storage enables a better correspondence to be obtained between supply anddemand, and it is also always possible to deal with surplus produce. A monopolisticBoard can divide the total supply between different markets so as to secure a highermean price than could be obtained by fixing one standard price for all markets.Moreover, the ability to pay the farmer an average price over a long time periodmakes it possible to restrain fluctuations in the farmers income, and to exploitefficiently resources in the production process. The board has a better access tomarketing information and consumer tendencies [50].For example, in New Zealand, oranges are all marketed through production andmarketing boards. The function of such boards is to acquire the entire local citruscrop and fix a price for 96 it. The board according to grading of the marketed fruitfixes the prices. 14 days after the fruit is received, the board must inform thegrower of its grading, and have the price to be paid. Payments to the grower aremade on a monthly basis. The board expenses are covered by deducting a certainpercentage from the value of the entire quantity marketed by each producer [51].Production boards in developing countries are government oriented. Most of themhave been initiated by the government and are ruled by it. These are boards, whichact as tax collecting organizations, or as foreign currency controllers, and do verylittle in the way of marketing [52]. In Senegal, for example, the peanut marketingcooperative was practically a state monopoly for marketing of agricultural produce.These were set up in such a way as to ensure political control, and in parallel to 18

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excise as much as possible from the farmers income. The total income from peanutexports from Senegal was divided into three parts, which were the return to theproducer, various deductions and marketing expenses, and the upshot was that theproducer did not get the maximum return [53].It must be stressed that monopolistic production boards in developing countries,which were intended to be of benefit to the producers as well as to the state, have infact inflicted severe damage on the national economy of their respective countries.We know of great many examples, and one of the famous ones comes from Ghana,one of the largest coffee and cocoa producers in the world. Ghana has suffered froma distorted policy in regard to the production and marketing councils. A sizeable partof the annual coffee and cocoa produce (some say as much as one-third) wassmuggled into the neighboring countries and exported from them. The result was adecrease in foreign currency income to Ghana, and an increase in W this income tothe neighboring states. In conversations with people from Ghana, one hears itargued that the farmers are in fact to blame for this. None would entertain the notion,at least not officially, that perhaps the government policy is to blame, in that itenforced an unrealistic exchange rate, relatively low prices, delayed payments, andthe result was very low profitability to the farmer. Such policy leaves no choice forthe farmer, but to smuggle his produce somewhere else. Where he can obtain for itthe highest return.In other developing countries we encounter an inefficient internal marketing system,inadequate transportation, produce collection, sorting and packing and no immediatepayment to the farmer, all leading up to the farmer eventually selling his 99 produceto private middlemen, instead of to the government marketing organizations. Thefarmer manages to get his income. I| but the entire system of guided agriculturalcredit is damaged, because it is unable to collect cultivation credits which wereextended to the farmers.The researchers Izraeli and others suggested models of the development ofproduction and marketing boards [54]. The model presents a system of marketinginstitutions, which starts with the situation in which we find independent producers,who market their produce on their own and make their own decisions. Each of themhas the authority to decide by himself and for himself. So far as he is concerned, hisauthority is quite extensive, his surroundings, however, he has very little authority.The alternatives are limited because his resources are limited, and he is subject toboth horizontal and vertical competition. Next we pass to a situation in which agrowing number of farmers cooperate in order to increase their power relative to non-member producers. A framework of formal relationship is set up to that end betweenthe members, and a cooperative comes thus into being. Each of the producersgives up a part of his autonomy, and areas of joint operation are formed, whereby itis agreed that in these areas the general decision must overrule the decisions of theindividuals. In this way the struggle of producers with one another is replaced by thestruggle of producers of one sector with other sectors.Further formation of establishments amongst the producers, including eventuallyother sectors, gives rise to new organizations, in which the producers cooperate withthe government, with the various intermediary outfits, with the cultivation specialists,and also with representatives of the consumers. Statutory recognition provides the 19

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impetus for the formation of the marketing boards. These belong at first to oneproductive sector. The process goes on, however, and gives rise to inter-sectorialproduction and marketing councils. When these councils are formed, people are stillworried about the possibility that weak sectors, such as the consumers, or society atlarge, are going to get hurt. In the final stage, production councils are establishedwhich have a social interest, with the government participating, and in whichnational welfare priorities are brought forward. In Israel, this approach has beenadapted in the establishment of various production, marketing and export councils,whereby 50% of their directorates are allotted to representatives of the varioussectors, and the remaining authority is in the hands of government, throughrepresentatives of various public sectors.9. The Planning of Marketing in Traditional Rural AreasThe third world countries consist mostly of rural areas, and the percentage of thepopulation living in rural areas is typically between 70 and 90 percent. The villagersare mostly farmers, but this is subsistence farming, and cultivation, produce, creditand marketing are done after the traditional fashion. The framework of society istraditional, as compared to Western society, which is mostly urban.One of the main goats of third-world countries is development [55]. Manydevelopment efforts were made over the last 30 years, but not always withsatisfactory results. One of the main goats of these countries was thedevelopment of agriculture, the improvement of the level of food production, both forinternal use and for export, and the improvement of the farmers’ standard of living.The agricultural development in general largely revolves around four main points. Atthe center we have the agricultural production processes. Production becomespossible when we supply to the farmer suitable credit, the possibility of obtainingcheap supplies of inputs, and the possibility of marketing his produce in a mannersatisfactory to him. In the traditional system, production is carried out by age-outdated methods, credit is expensive, and interest is usurious. Inputs are expensiveand scarce, and marketing exploitative and controlled by middlemen [56]. The effortsof developing the agriculture in traditional rural areas revolve in fact around thesefour points. It turns out, that when the deed is done property, a cooperative canindeed give a true and satisfactory answer to the problem of development oftraditional rural areas.9.1 Productions and MarketingWe have seen in the first chapter that marketing which used in the past to beproduction oriented, is today a system, which focuses on the diagnosis of therequirements of the targeted market and the means by which these requirementsmay be supplied. One may wonder if the traditional farmer, producing his traditionalgoods, within the fabric of a system, which does not allow much leeway orirregularity, would be capable of adopting the marketing orientation of our times. Inother words, when we build a marketing program, when we plan the marketing of thetraditional farmer, or even of an agricultural cooperative which is set up within atraditional village, should be construct a program based on production as it is, or on 20

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planned and improved production, which would endeavor to define the optimumdistribution of the target and increasing quantities turned out by improved production.On the other hand, we can come to the traditional farmer and tell him: We are goingto focus on establishing the market requirements; and based on the marketrequirements, we are going to lay out a production program for you which wiltanswer those requirements.The dilemma presented above is very important. Modern marketing literature is infact concerned with the presentation of solutions according to the second formula.Is this formula applicable in the framework of a rural traditional society? Twoexamples from Israel may perhaps provide an answer to this question. The firstexample relates to the grapes of a Moshav called Lachish. This Moshav was foundedtowards the end of the end of the fifties in the Lachish region. The Moshav is basedon mixed farming, but one of the main production branches is grapes for eating. Theterrain is flat highlands, with soil suitable for vine growing. The Moshav employedspecialists in the cultivation of vines, and succeeded in acclimatizing a new strainof edible grapes, which belongs to the Sultanina family - these are grapes withoutpits. The new strain proved to be resistant. And it gave very high yields per unitareas. It had introduced to the Israeli market. The problem was how to market theMoshav Lachish grape. In other words, the starting point was that here theproduction was already a fact of life and now the output should to be marketed. Itwas known to the marketing planners at the Lachish grape had some singularqualities – it ripens in the season in which the competition Is relatively slight, and thesupply may be as high as one-fifth of the total consumption of edible grapes in IsraelThe program consisted in a publicity campaign, or a marketing program, whichstressed the quality of the Lachish grapes, and especially the fact that they had nopits. The grapes were packed in small transparent uniform plastic containers. Theywere given a trade name, and the Moshav hired a marketing specialist who took careof the produce sales throughout the various markets in Israel. This campaign hasbeen very successful [57]. Here we have an example in which a procluct1veagricultural system sets up for itself a marketing apparatus, to assist it in selling itsproduce.A somewhat similar story may be gleaned from interviews published 1n variousnewspapers, with Shimshon Wolner, the manager of the Ramat Hagolan vineyards.Many wine-grape vines were planted in the Golan Heights towards the end of the70’s. The volcanic soil of the Golan Hieghts favored the wine-bearing grapes. At thebeginning of the 80-s there were In Israel quite a few vineyards, which controlled thewine market and offered to the consumer public a variety of wines at relatively verylow prices, and of course the quality was not very high. The Moshavlm andkibbutzim of the Golan Heights understood that they must establish a vineyard oftheir own, otherwise they would not be able sell all their produce, and the returnwould also be very low. Such vineyards were duly and the wine manufactured.Shimshon Wolner applied a very clever marketing policy. He sold wine, admittedly ofgood quality, but at prices that were four or five times as high as prices, then, currentin the market. The quantity marketed was small at first, and he sold them mostly tohotels, tourists and prestige restaurants. In parallel he started a systematic campaignto spread around, as it were surreptitiously, the name of this precious quality winewhich was virtually unobtainable. The result of this campaign was extraordinary. Thewine quantities marketed grew from year to year, and the demand for these wines 21

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increased in parallel, frequently exceeding the supply offered on the market, andcertainly at a much higher return to the producers.Here we have an example demonstrating how a given agricultural production formsthe framework from which a marketing program is derived, which if successfulestablishes also the success of the farmer. It should be noted that had a marketsurvey been performed at the time, the current data would have indicated that themarket was saturated with wine, with large stockpiles. The successful program of theGolan vineyards created new types of demand, which had not existed before, andthis made for great success. In view of all this, we ask ourselves once more: Howshould we construct a marketing program for traditional rural areas. We shall try toanswer this question in the following chapters.9.2 The Financial Structure of a Marketing CooperativeThe financial structure of a marketing cooperative is basically similar to the financialstructure of any other cooperative [59]. The basic conception is that the purpose ofthe marketing cooperative is one only - to offer the members the best service that thecooperative can give. Any other goal set before it, any goal such as profit making, oreven the distribution of surplus, is unjustified, and in the long run would lead to ||failure of the marketing cooperative in its function as a cooperative. What is the bestservice to the member? - The marketing cooperative is the organ, which sells themember’s produce, and hands him over the highest obtainable return. What is thestructure of such a cooperative? - On the one hand, we have the producer/memberwho passes his produce on to the cooperative. The cooperative serves in fact as anagency, which keeps the produce for some time, and then passes it on to theconsumer. The cooperative receives financial income, which is the return paid bythe consumers to the cooperative for the agricultural produce marketed. In fact,according to our above definition, the cooperative should pass on all monies itreceives to the farmer, deducting precisely the sum required by the cooperative inorder to exist and go on selling.What are those expenses made up of? In the first place, we have the directoperational expenses. These are the expenses involved in running the cooperative.They include wages, current expenses, maintenance, insurance, marketing losses,and any other expense necessary for the upkeep of the system. In addition, wehave to deduct from the return also the indirect expenses, the price of financing thefounding of the cooperative. Many cooperatives all over the world recover theprice of investment in the cooperative by deducting a certain commission from anysale by the cooperative. This gives rise to very serious problems. Take for examplea cooperative dairy, which must market the produce of two members. Suppose, forthe sake of argument, that in this cooperative there are just those two members. Thecooperative has a dairy, which takes care of the conveyance of milk produced by thetwo members. A certain sum has been invested in -the dairy, which enables eachmember to market as much as he produces. The dairy price is deducted and isgradually returned within five years. Out of every liter of milk passing through thedairy, a certain sum is deducted, in order to return the investment. In our example,over five years, one farmer markets 1.000 liters a day. While the other farmer onlymarkets 100 liters a day. The result is that in effect one member contributes to thereturn of the investment ten times as much as the other member. When after five 22

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years, the entire investment has been repaid, and the members are now free ofindirect expenses, since these have all been paid off, the second member may stepup his milk production, let us say to 500 liters a day. And then make use of a facilitythe investment in which has been largely paid by the first member. This is flagrantinjustice.In my opinion, the financing expenses of the cooperative must be entirelydisassociated from the operating costs. The financing expenses must be paid by allmembers equally, or equitably, but definitely in a manner totally disassociated fromthe operating system of the cooperative. That process, in which a fixed commissionis imposed on the members produce, which also covers the indirect expenses of thecooperative, is wrong. When it is applied in a marketing cooperative, which includesmany members, by way of deduction of commission, or, by investments out ofsurplus, we in fact create two kinds of equity. The one is small, it belongs to themembers, who may have paid for a minimum membership share, while the other isenormous in extent, and cannot be attributed to any member. The result is a feelingon the part of the members that they are cut off from the cooperative, and sometimesthey become indifferent to what goes on there.The price of service given by the cooperative must therefore only include the directexpenses, plus a certain safety margin, intended to cover unexpected expenses overcertain time periods. This sum is in fact the surplus of the cooperative. This sumbelongs entirely and absolutely to the members, and must be split up between themin proportion to the use they make of the cooperative services. In fact, a goodmarketing cooperative will deduct from members the lowest possible sums ascoverage of unexpected expenses, and will hasten to return them as soon aspossible, in order not to let them be devalued by inflation.9.2.1 Management of the Marketing CooperativeThe marketing cooperative manager should be employed on the basis of the formulaof wages proportionate to productivity. The cooperative manager should receivesome kind of low basic salary, and on top of it a fixed remuneration, which is to workout according to his success in marketing the cooperative products. He shouldreceive a certain small payment, which must be worked out in each case separatelyof course, against every volume unit or weight unit which is passed through andsuccessfully marketed by the cooperative. The interest of the manager, which willprovide an -incentive for him - do his job well, is of course the desire to earn moremoney. Good management of the cooperative would be expressed in increasedsales of products brought to the cooperative. The more he sells, the more money hemakes. The more he succeeds in reducing the cooperative expenses, the morecompetitive the price he will be able to offer on the market. In this way both partiesare going to benefit. The members will have a cooperative, which sells theirproduce well, increases their income and has a manager who makes a lot of money,but manages the cooperative efficiently, and is not distracted by thoughts of how toembezzle its funds.9.2.2 Marketing Cooperatives in Developing Countries 23

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In most of the worlds countries there is little understanding of what a cooperativereally is. In many countries, a cooperative is commonly regarded as something setup in order to provide profit and income. Such cooperatives do not serve theirmembers at all. Managers who look for ways of showing a profit, raise the operatingexpenses of the cooperative, and thus injure the members, as well as the consumerpublic. The cooperative becomes a place in which you can employ family relatives,without regard for the cost of such action to the cooperative. Most cooperativemembers are unable to monitor and control the activities, which go on, suffer frombad management and from corruption of the organizations which run thecooperatives.Many cooperatives are founded by decree of high authority, and not by the membersthemselves. The cooperatives serve as an excellent financing instrument in theframework of the so-called economy of affection and the political clan [60]. Forvarious politicians, and only seldom provide efficient service to their members.Figure 3. 24

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9.3 Marketing PlanningLet us restate our problem. We are discussing a traditional| village, in which therelives a community subsisting by traditional agriculture. We wish to develop thisvillage. Our task is to prepare the village a program, which enables it to develop.The peasant who lives in this village is engaged in agriculture, grows traditionalcrops, cultivates his field in the traditional way and obtains low yields. His annualincome is low. His daily output is very low indeed, and so is the production outputper unit area of the plot he cultivates together with his family.The first phase of our program will consist in preparing for the peasant a farm plan,which will increase his income, raise his productivity, and reduce the extent ofdisguised underemployment in which he lives. The farm plan takes into accountsuch factors as the free working days throughout the year of the farmer and hisfamily members, the cultivated plot at his disposal, the crops he is able to grow, howmany working days are required for each type of crop, and what is the financial returnper working day for each type of crop. Based on all these data the peasant preparesan optimum plan, which will enable him to keep himself and his family membersemployed to the maximum possible extent throughout the year, as well as to growcrops which will give him a higher financial return, to cultivate a larger plot, and toobtain a higher income per working day.It is obvious that this situation is what every peasant desires, especially in thetraditional village, but such a situation does not exist in isolation. Any change at theproduction stage depends by close reciprocal link on the three factors mentionedabove - credit, inputs supplies, and marketing. In the traditional system, themarketing was usually done by a series of middlemen, who left very little return in thepeasants hands and in his pockets. In a development system one must give thepeasant an answer, which will let him market his produce, and receive the maximumreturn. One of the efficient ways of doing this when it is properly executed is thecooperative way. In order to produce, the peasant needs suitable credit to acquirethe necessary inputs. The peasant also needs a channel through which to markethis produce with the maximum efficiency.9.3.1. Present and Expected Production PlanThe first body of data we have to assemble, of course, is the production plan, whichis being applied at present, and how the produce is being marketed. In aninvestigation conducted in a rural area in Benin, it was found that only 35% of theproduce has been sold, and the remainder was consumed by the peasant and hisfamily [61]. Certainly, we must know, after learning the farming plan presented bythe peasant, what are his production expectations. Another component, which wehave to work into the plan, is the survey of the market capacity for absorbing what weare about -to produce. In -the first, place we examine what -this market receives,and then how could 1-t absorb what. We are about to produce. The next step in ourmarketing plan would be the marketing cooperative. It is the cooperative, which hasto come into contact with the peasant, when the produce is ready for sale. From thismoment on, the cooperative is responsible for the produce, its marketing and sale.The cooperative should check if the agricultural produce can be stored and for how 25

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long. In many developing countries the peasants sell their produce immediatelyafter the harvest, when the market is glutted and the prices are low, because theyneed the money to repay their debts. After a few months, in the off-season whensupply becomes shorter on the market, the prices go up. A traditional peasant wholacks any storage capability is the loser, while the trader makes a profit.9.3.2. Processing of Agricultural ProduceThe second component of the marketing plan is the processing of agriculturalproduce. Would it be possible to process the agricultural produce? - Taking anexample from Israel, we find that in the past the Moshav farmer used to sell histurkey alive, by weight, to the trader. Later on, cooperative slaughter houses wereset up in which the fowls were slaughtered, and marketed as clean frozen meat.The next development was processing. Instead of selling the turkeys whole, theywere sold in parts, cut up and with the choice cuts separately packed, as well as in avariety of processed meat products. All these processes raised the return to thefarmer. In the developing countries it is possible to process the cassava into gari orinto tapioca, just to mention things being done already, and then to get for them ahigher price.9.3.3. PackagingThe third component is a suitable packaging for a suitable product. A proper,standardized package of standard weight and suitable quality will bring a higherreturn to the farmer. A| description of the sale of corn in Benin [62], which resemblesthe manner of doing this in other African countries, relates how the trader is the onewho brings the empty sacks to the peasant, after threshing, to fill them up. The sackis supposed to weigh 100 kg when full, and here the trader applies various tricks toget more corn into the same number of sacks, to the peasant’s loss. Even when thequantity sold is measured out, the buyer makes use of all kinds of methods to changethe standard measure to his advantage, and the peasant comes out the loser again.9.3.4. Transportation and DeliveryThe next component of the marketing plant is transportation. The ability of thecooperative to transport its produce on its own is generally considered a greatadvantage. The cooperative can choose the most suitable means of transportation,the transportation capacity employed as well as the direction of transportationaccording to its needs and capabilities. We find that many cooperatives indeveloping countries assume that the development of the transportation functionwithin the cooperative framework means that the cooperative must purchase thevehicles, but this is incorrect. It turns out that the purchase of a truck by thecooperative is done without conducting the necessary economical examination.It is generally the case that the truck capacity is not put to full use most of the year,except at harvest time. And then it is often insufficient. An additional problem is truckmaintenance. In most cases the cooperative hires a driver, and such drivers receivea very low pay in most countries of the world. This driver will in most cases lack anincentive to do his work. The driver s job carries a heavy responsibility. The vastmajority of roads in rural areas are in very bad repair. Responsible driving on thepart of the driver will prolong the life of the truck. A driver, who receives insufficient 26

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wages, will not care at all if the truck is going from bad to worse, and will not maintainit properly. The cooperative might save a little on the driver s wages, but stands tolose a fortune when the truck if finally wrecked. We find in many countriesthroughout the world so called cemeteries of trucks and mechanical equipment, andin most cases this is a result of a policy offering no incentive and no suitableremuneration to the managerial and operational personnel. Such a driver should bepaid by the mileage driven, and in accordance with the capacity transported, driverknows that a well kept truck in good mechanical condition will enable him to transportmore and earn more. The cooperative must adopt in principle a policy of acquiringtransportation services at the cheapest possible outlay, either by acquiring a truck, orby renting the transportation capacity, which exists in the vicinity.9.3.5. Trade NameTrade names sell agricultural products. In Israel we are familiar with "Lachish"grapes, "Golan” wines, or "Hatzeva" watermelons. These are trade names ofagricultural produce coming from specific regions, or specific moshavim. It turns outthat a trade name is a good promoter of sale of agricultural produce especially inmarkets saturated with the same produce. Carmel is a trade name of Israeliagricultural produce on the European markets, which helps the Israeli farmer toobtain higher returns for his produce. Israeli persimmons were introduced to theEuropean market under the trade name "Pri-Sharon” and with great success. AtElsmeer, the Netherlands, the flower exchange clock-indicators assign higher pricesto flowers sent in by a certain grower than to flowers from another source, andsometimes the flowers are bought even before the clock-indicators are set, and ofcourse, at a higher price. All these are examples, which demonstrate the importanceof the trade name for sales of agricultural produce.9.3.6. Marketing ContractsThe Israeli export system of agricultural produce functions by means of marketingcontracts. The organs responsible for agricultural exports sign marketing contractswith the farmers. The signing of supply contracts of sorted and gradedagricultural produce, on pre-determined dates, and at set quantities, enables thesemarketing organs to plan their marketing campaign in the export market with veryhigh efficiency. On the other hand, the farmer knows that once he has signed thecontracts, his risk is very considerably alleviated. He can turn his power, attentionand energy to production, knowing that a great deal of his troubles has been settled.He knows that he has to devote himself to his work in order to succeed. Now he canimmerse himself more in his professional activities. The signing of the contractenables the farmer to obtain advance payments for cultivation. This kind of credit isusually cheaper, and it is repaid upon the marketing of the produce.9.3.7. Credit to the FarmerAs mentioned above, the farmer can only produce when he receives credit. In thetraditional system he used to get credit from the local moneylender. Such moneygenerally costs very much and the farmer is damaged as a rule. Development 27

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enterprises in third world countries have set themselves a goal of providing suitablecredit to farmers participating in various projects in general and cooperatives inparticular. For example, the coffee growers of the Ivory Coast receive a credit fromthe national agricultural development bank in this country. This credit is intended toenable the farmer to pass the agricultural season without resorting to the services ofmoneylenders. The credit is intended to cultivate the plantations. The problem usedto be the repayment of this credit. The Ivory Coast Government, operating throughits bank, or through other organizations, did not provide an efficient marketing systemfor the coffee, which should have started with the farmer and ended at the exportharbor. Some stages were left out, which the farmer had to undertake on his own,but the farmer was not organized to do this, or organized by inefficient outfits. Thefarmers eventually found the answer themselves. They sold the coffee, for cash, attheir plantation gates, to private traders. In this way, they managed to obtain fortheir produce the highest return possible so far as they were concerned. The IvoryCoast Government, in adopting a policy of extending credit without linking it tightlywith marketing, and without offering to the farmer efficient marketing solutionsaccessible and satisfactory to him, was left practically without any means ofrecovering this credit, which had to be considered lost credit [62]. A similar situationexists also in other West-African countries.An additional problem is the result of the lack of understanding by policy makers ofthe subject of agricultural credit, in all its aspects. The farmer receives advances andcultivation loans, which help him to pass the agricultural season without resorting tothe services of moneylenders. This is the basic assumption of the makers of creditpolicy in various places in the world.However, the farmer has family, children and a wife. He must feed them andprovide for them also in the months in which plantations bear no crop. And his cashflow is negative. All those project managers have foreseen no problem here, andhave not taken care to provide the farmer with short-term subsistence advances.The farmer must find a financial source to that end, and naturally he turns to thesource, which is always at his disposal, the moneylender. At harvest time, when thecrop is ready for sale, the very first name on the list, and the most pressing forrepayment is the money lender, which in most cases is also the marketingmiddleman, and he is the one who receives the produce for sale, not the project northe cooperative. Again, the cooperative does not sell the produce so that it hasalmost no possibility of recovering the credit extended.9.3.8. Terms of PaymentWhen does the marketing cooperative pay the cooperative member for his produce,and what prices should be paid? - In the cooperative operational system we have infact a conflict of opposites. On the one hand the members wish to obtain for theirproduce the highest possible price, paid in cash if possible. On the other hand, thecooperative must first sell the produce to obtain money for the member, and to thatend it must compete on the market so as to obtain the best possible results. Amethod of payment, which is practiced by many marketing cooperatives, is thecommission method. The return is passed on to the producer, following the sate, andafter the deduction of the commission which consists of a certain percentage of thetotal sale value, and which is intended to cover the cooperative expenses. Thismethod has advantages, because it does not involve the cooperative in any risk, and 28

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it enables the cooperative to specialize. The method has also some drawbacks. Itdoes not answer to the wishes of the small farmer, who prefers to sell his produce tothe cooperative and to receive cash payment in return. It is difficult for marketingcooperatives to compete with the private traders, who pay cash. Therefore, manymarketing cooperatives have resorted to the same method, that is, they buy from thefarmer at the full price, and pay cash. This method is applied in the case of smallfarmers in traditional rural areas [63]. Cooperatives generally prefer to be an organthat transfers quantities for sate. The cooperative assures a steady supply,acceptance, payment and making out of invoices [64].It is most difficult for marketing cooperatives to sell on a commission basis freshvegetables and fruits produce, and indeed in many countries the percentage ofmarketing cooperatives in this field, including Israel, is relatively low.Another problem bound up with this subject is that of minimum prices. The minimumprices assured to the farmer, mostly the traditional "Farmer, help to overcome hisapprehension concerning unexpected turns for the worse. On the other hand,minimum prices lead in cases of a market dumped with the agricultural produce inquestion to a financial burden on the cooperative, which is sometimes unbearable. Itis important for the cooperative to receive support on that issue from an externalorganization, such as the Government, that will ensure it, and thus offer it security incases it is forced to pay. A cooperative unable to withstand this financial burden,and which does not turn for support to an external organization, is liable to find itselfin a difficult crisis, which will ultimately injure the members, and lead to a failure ofthe cooperative.9.3.9. Financial Structure of the Marketing Cooperative as a Part of theMarketing Plan.The marketing plan must also include an appropriate financial structure of thecooperative. The fourth international cooperative principle states that part of thecooperative surplus may be employed to finance future investments in thecooperative. This is a fundamentally misleading principle, which causes thedistortion of the cooperative capital structure [65]. This principle results in theformation in the cooperative of two kinds of equity. This is also the case withTnuva in Israel. This is an unhealthy situation, which leads to disassociationbetween the members and the cooperative.Moreover, the cooperative and its management, knowing that the sources for futureinvestments are going to be found in the surplus, and not directly be provided by themembers, will do all they can to build up the surplus, by paying less to the membersin return for their produce. A lower pay to the member gives rise to dissatisfaction ofthe member as a result of which he may turn to private marketing.The financial structure of the cooperative must be made up of investment capital,which is divided equally or equitably among the members. The shares of all themembers add up to the sum total of investments in the cooperative. Every increasein the cooperative investments must be divided entirely between the members, andnot be taken out of the surplus. Such policy will lead to a direct and deeper financialinvolvement of the member in the cooperative, and as a result the member will care 29

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more about what goes on in his cooperative.The cooperative’s direct expenses must be divided among all members, accordingto the members degree of participation in the cooperative business, that is,according to the quantity of produce he markets through the cooperative. This policy,which removes from the marketing price the burden of financing expenses, in effectreduces the marketing price, and creates an incentive for members to market moreand more through their cooperative. Indeed, the more the member markets throughthe cooperative, the greater the reduction in price of each unit marketed. Themember must bear the financing costs, which are a constant factor- therefore, themore he markets, and the less financing costs per unit marketed.Such a policy achieves more Justice amongst the members, encourages members totake part in the doings of their cooperative, and raises their commitment to thesuccess of their cooperative. It shou1d be added and stressed, that the cooperativemust be run by the formula of remuneration according results obtained, in order tosecure for the member the maximum return he deserves.9.3.10 Cash FlowThis is an important part in every marketing plan. We have to know what is ourfinancia1 status in the cooperative. We have to know if our operation is profitable orare we losing money. We have to plan our actions ahead of time, and we have tomaintain a system of controls, which would allow us to check ourselves at each stepduring the year.A marketing cooperative must prepare for itself a system of cash flow, which shouldinclude all the elements making up the financial structure of the cooperative. Thissystem must include an estimate of cash flow for each and every member of thecooperative, based on expected production during the year. Another component arethe departments of the marketing cooperative. To this we must add the variousfinancing cost, and the general expenses of the cooperative. The cash flow systemshould be laid out in tables, which will display in full details various activities of thecooperative, month by month, and on a seasonal and annual level.9-3-11- Cooperative Educations and Instruction (Extension)Setting up marketing cooperative in traditional rural areas is a very difficult operation.The difficulties are many and varied but in front of them all on the scale of difficultieswe have the most important factor, which is the member himself.The cooperative is the member, and depends on its members for its existence. Whenthe members do not understand and do not know what the cooperative is, what areits function, what it is capable of giving to the member, and what one may not expectfrom it there is no chance for the existence of this with this cooperative. Side by sidewith this, we must remember that we would like to introduce a variety of componentsin the cooperative, as described in the foregoing. The vast majority of thesecomponents represent processes of modernization and innovation, and they aredesigned for members who are in fact traditional peasants, who live in traditionalvillages. 30